Self-Employed Health Insurance Deduction: The Full Picture
Self-employed individuals can deduct 100% of health insurance premiums as an above-the-line deduction under IRC §162(l). This reduces both income tax and self-employment tax — and most people don't claim the full amount they're owed.
100% Deductible — Above the Line
Unlike W-2 employees who deduct medical expenses only if they exceed 7.5% of AGI, self-employed individuals get a 100% deduction for health insurance premiums — right off the top of gross income, before calculating AGI. This is called an "above the line" deduction and it applies regardless of whether you itemize.
The deduction covers premiums for yourself, your spouse, and your dependents. Long-term care insurance premiums are also includable, subject to age-based limits.
What Qualifies
- Individual health insurance policies (marketplace, directly from insurer)
- Medicare premiums (Parts A, B, C, D) — often overlooked
- Dental and vision insurance
- Long-term care insurance (age-based limits: $480–$6,020 in 2024)
- Health insurance for your spouse and dependents
Does NOT qualify: Premiums paid with pre-tax dollars through an employer plan, premiums eligible for an employer subsidy you declined, or premiums paid via HSA.
The Net Earnings Limitation
The deduction cannot exceed your net self-employment income for the year. If your net SE income is $20,000 but you paid $30,000 in premiums, you can only deduct $20,000. The excess is not lost — it may be deducted as a medical expense on Schedule A (subject to the 7.5% AGI floor).
S-Corp Owners: Different Rules Apply
An S-Corp cannot directly deduct health insurance premiums for a 2%+ shareholder-employee the same way. The correct structure:
- The S-Corp pays or reimburses the premium
- The premium is included in Box 1 of the shareholder's W-2 (reported as wages, but not subject to FICA)
- The shareholder deducts the amount on Schedule 1 of Form 1040 under §162(l)
Failure to follow this protocol can result in loss of the deduction. IRS Notice 2008-1.
SE Tax Reduction Bonus
For sole proprietors and LLC owners (not S-Corp shareholders), the self-employed health insurance deduction also reduces net self-employment income — which reduces the SE tax base. On $12,000 of premiums at the 15.3% SE rate, that's an additional $1,836 in SE tax savings, on top of the income tax deduction.
IRC §162(l) (self-employed health insurance deduction), IRC §213 (medical expense deduction), IRS Notice 2008-1 (S-Corp health insurance), IRC §7702B (long-term care). IRS Publication 535 (Business Expenses), IRS Publication 502 (Medical and Dental Expenses).
Genie reviews your health insurance situation and confirms you're claiming the full deduction — including Medicare premiums most self-employed people miss.
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